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​​The Situation
​
​​​​Financial assets like the SP500 had a very good performance indeed til August 2015 when the market shifted to a risk off pattern... Usually the market is following the VIX Index in search of risk factor.​​​But a less know Index, the SKEW Index from CBOE can tell us a different story from time to time...

The CBOE Skew IndexSM - referred to as "SKEW" – is an option-based indicator that
measures the perceived tail risk of the distribution of S&P 500
®
log returns at a 30-
day horizon. Tail risk is the risk associated with an increase in the probability of
outlier returns, returns two or more standard deviations below the mean.

​​A SKEW value of 100 means that the perceived distribution of S&P 500 log-returns is normal, and the probability of outlier returns is therefore negligible. As SKEW rises above 100, the left tail of the S&P 500 distribution acquires more weight, and the probabilities of outlier returns become more significant.

​​SKEW and VIX are different and complementary measures of the risk of 30-day S&P
500 returns. VIX is a close proxy for the standard deviation of those returns. The
standard deviation describes the average spread of the distribution of returns around
its mean. This is not a sufficient measure of risk because the distribution of S&P 500
log returns is not normal. SKEW describes the tail risk of the distribution. The daily
values of SKEW and VIX are uncorrelated, but the range of SKEW tends to narrows
for extreme values of VIX.

​​​​The option market is telling us to expect the market to a typical return profile since the SKEW is falling since January 16 2016 and that the 20 and 50 DMAs ( Day Moving Averages ) are heading lower. The 20 DMA on the SKEW ( Red Line on the chart below ) is reaching levels not seen since July 17 2015 2015 and at near levels where we had previous corrections on the SP500. ​( See 1rst chart below - Yellow Horizontal Line and Ellipses )​That tells me that the participants are hedging that much with some protective options plays with the SP500 at that level.​ That is surprising because of the high uncertainties associated with international risks now (Emerging Markets, China, US Dollar Strength...) Previous complacency time in the Mighty SP500 have been associated with lower level of SKEW - few options protection needed.

​​But the most interesting technical factor is that at the time when the SKEW is falling at the lowest level since the end of 2014, the Mighty SP500 is getting near the Major Resistance Trendline that started back since December 2 2015. ( See chart below - Bottom Panel - Blue Trendline - Ellipse ).

​​But the SKEW to VIX ratio ( see chart below - Red Line ) is at the moment getting near ​a level were in the past have been associated with short term peaks in the SP500. The Mighty SP500 is near testing the Major Resistance Trendline that started back since December 2 2015. ( See chart below - Bottom Panel - Yellow Trendline - Ellipses ). ​( SKEW to VIX Ratio: Chart Below - Top Panel - Red Line - Ellipses )

But the most interesting technical factor is that at the time when the SKEW is falling at the lowest level since December 2014, that bring that SKEW to VIX ratio behavior the same as what happened in November 2 2015 and December 1 and 29 2015; few protection needed by market participants because of complacency​... ​​( See Chart Below - Yellow Trendlines )​​That shows how Market Participants are in complacency mode and looks like same behavior at previous minor peaks. SP500 at those levels and starting to see too much bullishness on a short term basis....​​